Thematic Peer Review on Corporate Debt Workouts: Summary Terms of Reference

28 June 2021 | PDF full text (200 KB)

Effective corporate restructuring and insolvency frameworks are necessary to help minimise risks to financial stability that could be caused by widespread defaults.

The Financial Stability Board (FSB) is seeking feedback from stakeholders as part of its thematic peer review on corporate debt workouts. The objective of the review is to support COVID-19 response efforts by examining FSB member jurisdictions’ practices, experiences and lessons from out of court debt workouts (OCWs), and the implications for financial stability.

The peer review will take stock of existing and planned OCW frameworks in FSB jurisdictions. It will examine the experience of particular mechanisms that have been, or are being used, to address corporate stress, including the role of financial sector authorities. The review will also seek to identify good practices and lessons on how well OCW frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and dealing with a large number of distressed corporates.

The Summary Terms of Reference provide more details on the objectives, scope and process for this review. The FSB has distributed a questionnaire to member jurisdictions to collect information in this area. In addition, as part of this peer review, the FSB invites feedback from financial institutions, corporates, insolvency practitioners and other stakeholders on out of court corporate debt workouts. This could include comments on:

  • the types of OCW frameworks (e.g. informal workouts, enhanced workouts and hybrid workouts) most often used in your jurisdiction and why;

  • features of OCW frameworks that may be particularly helpful to minimise the economic and financial system damage caused by corporate defaults due to COVID-19;

  • the appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivise the participation of various stakeholders in an OCW; and

  • experiences and challenges in the use of OCWs, including to manage the volume of non-performing loans in the financial system.

Feedback should be submitted by 9 August 2021 to [email protected] under the subject heading “FSB Thematic Peer Review on Corporate Debt Workouts”. Individual submissions will not be made public.

The peer review report is expected to be published in early 2022.

FSB launches thematic peer review on corporate debt workouts and invites feedback from stakeholders

Press enquiries:
+41 61 280 8477
[email protected]
Ref no: 15/2021

The Financial Stability Board (FSB) is seeking feedback from stakeholders as part of its thematic peer review on corporate debt workouts. The objective of the review is to support COVID-19 response efforts by examining FSB member jurisdictions’ practices, experiences and lessons from out of court debt workouts (OCWs), and the implications for financial stability.

The peer review will take stock of existing and planned OCW frameworks in FSB jurisdictions. It will examine the experience of particular mechanisms that have been or are being used to address corporate stress, including the role of financial sector authorities. The review will also seek to identify good practices and examples of how well OCW frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and dealing with a large number of distressed corporates.

The Summary Terms of Reference provide more details on the objectives, scope and process for this review. The FSB has circulated a questionnaire to its member jurisdictions to collect information in this area.

In addition, as part of this peer review, the FSB invites feedback from financial institutions, corporates, insolvency practitioners and other stakeholders on out of court corporate debt workouts. This could include comments on:

  • the types of OCW frameworks (e.g. informal workouts, enhanced workouts and hybrid workouts) most often used in your jurisdiction and why;

  • features of OCW frameworks that may be particularly helpful to minimise the economic and financial system damage caused by corporate defaults due to COVID-19;

  • the appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivise the participation of various stakeholders in an OCW; and

  • experiences and challenges in the use of OCWs, including to manage the volume of non-performing loans in the financial system.

Feedback should be sent to [email protected] by 9 August 2021 under the subject heading “FSB Thematic Peer Review on Corporate Debt Workouts”. Individual submissions will not be made public. The peer review report will be published in early 2022.

Notes to editors

The FSB began a regular programme of peer reviews in 2010, consisting of thematic reviews and country reviews. Thematic reviews focus on the implementation and effectiveness across the FSB membership of international financial standards developed by standard-setting bodies and policies agreed within the FSB in a particular area important for global financial stability. Thematic reviews may also analyse other areas important for global financial stability where international standards or policies do not yet exist. Peer reviews are conducted according to the objectives and guidelines set out in the Handbook for FSB Peer Reviews. All published peer review reports are available on the FSB website.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Application Paper on Supervision of Control Functions

23 June 2021

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Effective control functions with necessary independence, stature and resources help insurers identify and manage risks and are considered a crucial element of the corporate governance framework.

The Application Paper on Supervision of Control Functions describes practices aimed at helping supervisors address issues related to the supervision of control functions as described in the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). In particular, the Application Paper supports observance of ICP 8 (Risk Management and Control Functions) and is relevant to ICP 5 (Suitability of Persons) and ICP 7 (Corporate Governance).

The Application Paper describes practices aimed at helping supervisors address issues related to the supervision of control functions, such as: role, independence, stature, combination and outsourcing of control functions

Application Paper on Resolution Powers and Planning

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The Application Paper on Resolution Powers and Planning aims to provide supporting material on supervisory practices related to resolution, which is defined in the IAIS Glossary as “actions taken by a resolution authority towards an insurer that is no longer viable, or is likely to be no longer viable, and has no reasonable prospect of returning to viability.” In particular, it provides background for the application of ICP 12 (Exit from the Market and Resolution), including the ComFrame standards and guidance, and is also relevant to ICP 25 (Supervisory Cooperation and Coordination), including the ComFrame standards and guidance (related to crisis management planning). These materials were adopted at the IAIS Annual General Meeting in November 2019.

This Paper aims to:

  • Provide support to supervisors and/or resolution authorities on the practical application of resolution powers, as well as on cooperation and coordination between authorities when planning for, and exercising, such powers;

  • Provide support with regard to resolution planning, which may be beneficial to supervisors, resolution authorities and/or insurers, depending on the circumstances within a jurisdiction; and

  • Provide examples to illustrate the application of standards and guidance relevant to resolution.

The Paper also aims to address issues that were identified during the development of supervisory material in ICP 12 and ComFrame, including feedback received from IAIS Members and stakeholders. Issues that were identified, include:

  • Further guidance and clarifications around expectations for resolution planning;

  • Explanations and examples of the application of resolution powers;

  • The practical application of proportionality in the case of resolution; and

  • The role of policyholder protection schemes (PPS) in resolution. This Paper discusses the role that a PPS, if established within a jurisdiction, may have in relation to certain resolution powers as well as in relation to the resolution authority. It does not, however, aim to provide a comprehensive overview on the role of PPSs in resolution. The IAIS plans to start the development of an Issues Paper on this topic in the second half of 2021.

Outsourcing and third-party risk – Overview of responses to the public consultation

14 June 2021 | PDF full text (186 KB)

Summary of document history

Summary of document history

On 9 November 2020, the FSB published a discussion paper for public consultation on Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships. The FSB received 39 responses from a wide range of stakeholders including banks, insurers, asset managers, financial market infrastructures (FMIs), third-party service providers, industry associations, public authorities, and individuals. The FSB also held a virtual outreach meeting in late February 2021, attended by around 200 participants.

This note summarises the main issues raised and views expressed in the public consultation, including the virtual outreach meeting.

FSB Sub-Saharan Africa group discusses financial stability and regulatory and supervisory challenges arising from COVID-19

8 June 2021

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Ref no: 14/2021

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Sub-Saharan Africa held today a virtual meeting to discuss global and regional macroeconomic and financial market developments, including the financial stability implications of the COVID-19 pandemic on the region.

Members discussed some of the preliminary lessons learnt from the pandemic which were of particular relevance to Sub-Saharan African economies. Looking ahead, members exchanged views on potential threats to regional financial stability. They also shared their considerations in deciding whether and how to exit from temporary public support measures related to COVID-19, when conditions allow.

The group also discussed regulatory and supervisory challenges arising from the pandemic. They exchanged views on the aspects of the global regulatory framework that had been particularly important to their jurisdictions during the pandemic. They also shared information on specific adjustments they had made to their own regulatory and supervisory frameworks, in response to the pandemic, as well as any adjustments that might need to be made in response to identified longer-term and institutional resilience issues.

Members received an update on the FSB’s work programme and the planned deliverables for the G20 in 2021. The group discussed topics of importance for Sub-Saharan Africa member jurisdictions, including work underway in the FSB to: implement the G20 roadmap to enhance cross-border payments; support the transition away from LIBOR; strengthen cyber and operational resilience; and analyse and address climate-related financial risks.

Notes to editors

The FSB RCG for Sub-Saharan Africa is co-chaired by Lesetja Kganyago, Governor, South African Reserve Bank and Ernest Addison, Governor, Bank of Ghana. Membership includes financial authorities from Angola, Botswana, Ghana, Kenya, Mauritius, Namibia, Nigeria, South Africa, Tanzania, Uganda and Zambia as well as the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC). Permanent observers include the Committee of Central Bank Governors of the Southern African Development Community, and the East African Community.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 25 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve Board; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

Global Transition Roadmap for LIBOR

2 June 2021 | PDF full text (157 KB)

Transition away from LIBOR requires significant commitment and sustained effort from both financial and non-financial institutions across many LIBOR and non-LIBOR jurisdictions.

The Financial Stability Board has identified that continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. On 5 March 2021, ICE Benchmark Administration (IBA) and the UK Financial Conduct Authority (FCA) formally confirmed the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The majority of LIBOR panels will cease at the end of this year, with a number of key US dollar (USD) settings continuing until end-June 2023, to support rundown of legacy contracts only.

This updated Global Transition Roadmap (GTR) is intended to inform those with exposure to LIBOR benchmarks of some of the steps they should be taking now and over the remaining period to LIBOR cessation dates to successfully mitigate these risks. These are considered prudent steps to take to ensure an orderly transition by end-2021 and are intended to supplement existing timelines/milestones from industry working groups and regulators.

This does not constitute regulatory advice or affect any transition expectations set by individual regulators, which may require firms to move faster in some instances. It is important that all regulated financial institutions have an open and constructive LIBOR transition dialogue with their regulators, both home state and host state, throughout the transition period. As benchmark transitions vary across currency regions and legislation and other actions to promote transition are taking different paths in different jurisdictions, financial institutions, non-financial firms and others with exposure to LIBOR benchmarks should also monitor developments with regard to other IBORs relevant to their business.

Interest rate benchmark reform: Overnight risk-free rates and term rates

| PDF full text (357 KB)

The FSB has recognised that in some cases there may be a role for risk-free rate-derived term rates.

Interest rate benchmarks play a key role in global financial markets. To ensure financial stability, benchmarks which are used extensively must be especially robust. Consistent with this, the FSB, working through the Official Sector Steering Group (OSSG) it set up to coordinate international work to review and reform interest rate benchmarks, welcomes the progress that has been made by public authorities and private sector working groups in transitioning to overnight risk-free, or nearly risk-free, rates (RFRs) that are sufficiently robust for such extensive use.

Some of the working groups on RFRs have considered the development of forward-looking term rates derived from overnight RFRs (also described as “RFR-derived term rates”). However, in many markets, notably the largest part of the interest rate derivative markets, transition to the new overnight RFRs, rather than to these types of term rates, remains particularly important. This is for a number of interconnected reasons:

  • Derivative markets represent a particularly large and often highly leveraged proportion of exposures to interest rate benchmarks.

  • The overnight index swap (OIS) structure substantially reduces the incentive to manipulate individual IBOR settings by removing the stub payment risk.

  • Deep and liquid derivative markets based on the overnight RFRs are an essential prerequisite for creation of robust term benchmarks.

  • Due to their basis in inputs from other derivatives markets, widespread use of term RFRs in derivatives would create the potential for actual or perceived conflicts of interest for market participants.

The derivatives industry has recognised the importance of these issues, and, where IBORs are ending, has developed mechanisms to transition cleared derivatives to overnight RFRs via CCP rule changes, and uncleared derivatives to overnight RFRs via the International Swaps and Derivatives Association (ISDA) Protocol.

The FSB has recognised that in some cases there may be a role for RFR-derived term rates and sets out the circumstances where the limited use of RFR-based term rates would be compatible with financial stability.